Has China's Richest Man Cracked NZ's Productivity Paradox ? Maybe our big banks are to blame !
So many explanations have been put up to explain why productivity growth has been so disappointing in NZ in the aftermath of the pro-market reforms of the 1980s. In particular, it remains a super difficult market to raise venture capital. The NZX has also never really fired up as a way for small and medium enterprises to raise capital in order to get bigger. That leaves budding Kiwi entrepreneurs who are keen to take on the world with little option but traditional bank finance. And what do our big banks want in exchange for a loan? Typically a mortgage over your house, if you own one, or a personal guarantee. Now that's a great way to stop in their tracks those folks who don't have the backing of a wealthy family and yet who have huge potential to fire up productivity and innovation in NZ.
Recently, Alibaba-founder and China's richest man, Jack Ma, who has visited NZ in recent years, decried the collateral focus of traditional banks. He is calling instead for the use of big data to create a credit system that can better facilitate lending to asset-light smaller businesses. Ma said that the very nature of finance involved trust, and it would be necessary to abandon “the pawnshop mentality of banks”. He's got a point ! Doesn't the typical Kiwi bank whose in-house rule is to take bricks-and-mortar real estate as collateral care little about the merits or otherwise of the enterprise to which they are lending? Should it go bust, they're sitting on the gold, just like a pawn shop. Ironically, when you deposit your money in the very same bank, they offer you no such collateral in return!
Ma believes that this “pawnshop mentality” will make it difficult for traditional finance to support the needs of future growth, and has called for its replacement with a big-data based credit system. Sure, he is pushing the launch of his own company, but it's also a well-known fact that turning a small or medium enterprise in NZ into a big one is seldom ever done, and the design of our financial system, which is being regulated by the RBNZ to err more and more on the side of caution, maybe a critical constraint.